Hugh Wheelan: My delight and disappointment as Palatine and Apax win private equity RI Awards

LPs need to step up and encourage their private equity managers on ESG issues.

I was a judge for the responsible investment awards held at the British Venture Capital Association Summit this week. It was both a delight and a disappointment.
The delight.
The quality of the submissions was excellent. I’ve seen a lot of responsible investment/sustainability reports, and the entries were genuinely first class: relevant on the background of ESG integration, investment materiality, implementation, oversight and reporting.
Congratulations are in order to the winners.
In the category for less than €1bn in assets, the victor for both categories (Overall ESG Framework and ESG Engagement with Portfolio Companies) was Palatine, the Manchester based private equity firm: Link
The judges (see below) felt it was ‘the best by far’ in its asset category, and its report demonstrated a strong sense of improvement and evolution. RI is engrained in everything Palatine does, including independent reviews via Waterman, the environmental consultant, and its use of a continuous risk improvement process.
In the category for more than €1bn in assets, the winner for both categories was Apax, one of the private equity industry heavyweights.
The judges agreed it was a “strong and aspirational” submission. There were many examples of detailed ESG questions on entry to a portfolio firm as well as subsequent comprehensive action plans, all backed by strong buy-in from Apax management. Equally impressive are its attempts to provide standardised data on its portfolio’s RI performance to investors.
Honourable mention should also be made to some of the close runners-up including Cinven, Bridges Ventures and Triton.The disappointment.
There were far too few entries given the number of PE firms in the market. And in comparison to previous years there is too much turnover in the number of managers that do/don’t submit from year to year.
This appears to be a result of two main issues.
First, there is a lack of Limited Partner (LP) pressure for General Partners (Private equity firms or GPs) to have documented responsible investment policies and strategies; otherwise it would be easier for more GPs to enter. This is crazy given that ESG issues are undoubtedly material over the 3-7 year time horizons of private equity portfolios. LPs have to step up on this, given the value and risk on the table. For example, the Chief Executive of TGI Friday’s, the UK restaurant chain (now in PE hands), told the BVCA event yesterday that a huge part of the company’s turnaround strategy was a combination of the intangible benefit of people motivation, their belief in the business (resulting in lower staff turnover, better performance, return customers) and a fastidious focus on health and safety.
Significantly, 79% of attendees at the event said responsible investment would be more important to private equity in the next 3-5 years.
Second, there needs to be more work on the business rationale for ESG issues. The perception still lingers that it is too much about stifling value, when it is about quantifying and managing the ‘intangibles’ of business while keeping a close eye on the increasing regulatory pressure around issues of the environment, social benefit, and good management/legal adherence, as well as promoting more sustainable/fair and genuinely competitive long-term markets; aka responsible investment.

The judges for the BVCA Responsible Investment awards were Patricia Hamzahee (Integriti Capital),
Dushy Sivanithy (Pantheon), Jonathan Ord (London Pension Fund Authority),
 Hugh Wheelan (Responsible Investor),
 David Williamson (European Bank for Reconstruction and Development),
 Marie Audren (BVCA),
 Daniel Knight (BVCA).

Responsible Investor was a media partner for the BVCA RI awards.